News

No sweet alternatives here

Date:

13 Sep 2018

Source:

The Indian Express

Reporter:

Partha Sarathi Biswas & Harish Damodaran

News ID:

34530

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In the 2017-18 sugar season (October-September), Sachin Nalawade supplied 40 tonnes of cane from 1.5 out of his 3-acre holding to three mills, earning him a total return of about Rs 60,000. The 38-year-old from Parle village in Karad taluka of Maharashtra’s Satara district is, however, least optimistic about the coming season. “Crushing is yet to start, but mills are talking about excess production and depressed sugar realisations. I don’t know how much they will pay this time, even while my costs of fertiliser, diesel and labour have risen steeply,” he states.

The Sahyadri cooperative sugar factory, to which Nalawade had delivered 14 out of his 40 tonnes, paid Rs 2,921 per tonne, which was higher than the Central government’s Fair and Remunerative Price or FRP of Rs 2,798.64, after deduction of harvesting and transportation (H&T) charge of Rs 534.19 by the mill. For the balance 26 tonnes cane, delivered equally to the Yashwantrao Mohite Krishna cooperative mill and the privately-owned Jaywant Sugars, he was paid only their respective FRPs of Rs 2,882 and Rs 2,770 per tonne, net of H&T. The FRPs are fixed individually for factories, based on the percentage of sugar recovery from cane.

“Sahyadri, at the season’s start, had announced a cane rate of Rs 3,020, but reduced it when sugar prices crashed mid-season. The other two also promised initially to pay Rs 200 per tonne more than their FRPs. We are hoping that money will now come before Diwali (which falls on November 7),” notes Nalawade, who grows okra, brinjal, green chillies and other vegetables on his remaining 1.5 acres.

For 2018-19, he has only one wish: “I want them to at least pay the FRP immediately. If even that is paid in instalments, which is what some mills are saying, there will be hell here,” he exclaims. The FRP payable by the Sahyadri mill in the new season has been fixed at Rs 3,403.03 per tonne or Rs 2,861 after subtracting H&T charges of Rs 542.03. This is below the Rs 2,921 rate that it has paid for the current season.

In 2017-18, Maharashtra mills crushed 952.60 lakh tonnes (lt) of cane and produced a record 107.10 lt of sugar. This unprecedented output rebound — from 42.38 lt in 2016-17, the lowest in 12 years — has resulted in factories accumulating sugar stocks, which are likely at around 40 lt even before the new season takes off from October. But still worse is the projection for 2018-19, with mills in the state slated to crush 1,060 lt of cane and produce 115-120 lt of sugar.

Ex-factory sugar prices in Maharashtra are currently at Rs 29-29.5 per kg. However, these are artificially held up, due to the intervention measures taken by the Narendra Modi government on June 6. These included creation of a 30-lt buffer stock at the all-India level (to be maintained in mill godowns, with the interest and storage expenses borne by the Centre), restoration of the old system of monthly sale quotas (to regulate supplies in the market) and imposition of a minimum price (below which factories cannot sell). As a result, sugar realisations — which had slid from Rs 35-36 per kg in October-November to just over Rs 25 by mid-May, before the June 6 “package” — have recovered, although the underlying problem of glut remains.

The National Federation of Cooperative Sugar Factories has estimated India’s opening sugar stocks to be at almost 105 lt on October 1, as against 39 lt at the start of the 2017-18 season. With production for 2018-19 pegged at 335 lt and domestic consumption of 260 lt, stocks at the end of the season could touch 180 lt (see table).

“We have to get rid of the surplus sugar, as supporting prices by fixing sale quotas isn’t sustainable. How long can mills keep unsold stocks and pay interest on it? Also, unless sugar is sold, how do you create space for new production and, moreover, pay farmers?,” points out an industry source.

One way out is exports. According to Bhairavnath Thombare, chairman of the Osmanabad-based Natural Sugar & Allied Industries, mills in Maharashtra should be directed to produce only unrefined “raw” sugar during October-December. This entire sugar can be exported, for which there is a good market among refineries in Iran, Dubai, Saudi Arabia and even China, Bangladesh, Indonesia and Malaysia.

Raw sugar futures prices in New York for October are now at around 11.5 cents a pound. “Our raw brown sugar from fresh cane is dextran-free and with very high polarisation of 99-99.49, which refers to both sucrose content and ease of refining into whites. It can fetch a polarisation premium of 4 per cent, which translate into 12 cents a pound or roughly $ 265 per tonne. At Rs 72-to-the-dollar, it works out to Rs 19,000 per tonne. The ex-factory price against that (after deducting Rs 2,500 of transport, bagging and port handling charges) will be Rs 16.5 per kg,” explains the earlier-quoted source.

Exports at this rate will not be feasible, though, without government incentives. The Centre had, in May, provided a production subsidy of Rs 55 per tonne on cane crushed by mills, conditional upon their exporting sugar. While a mill-wise target for exports aggregating 20 lt was set for the 2017-18 season, actual shipments may not cross 5 lt. The deadline for meeting the targeted 20 lt has since been extended to December 2018.

“The government should increase the cane incentive to Rs 75-100 per tonne for exports beyond 20 lt. Besides, it must offer a transport subsidy on sugar, which could be Rs 2,500 per tonne for mills near ports and Rs 3,000 for those in the hinterland. And there is need to do this fast, so that mills can start producing raw sugar from October straightaway for export. Thailand sugar will start coming from December, while production in Brazil and Australia will be after April-May and June-July. So, there is this narrow time window, which we can exploit,” adds the source.

“My mills had produced raw sugar towards the end of this season. But we could not ship out much, because of no proper export policy. The government should realise that without exports, there will no improvement in domestic realisations or cash flows for mills, enabling them to pay farmers,” says Balasaheb Patil, chairman of the Sahyadri cooperative and Nationalist Congress Party legislator from Karad North constituency.

Meanwhile, Thombare, who is also president of the West Indian Sugar Mills Association, has demanded amending the Sugarcane Control Order of 1966 to allow mills to make payment of the Centre’s FRP in instalments. The existing rules require them to pay the entire FRP within 14 days of cane purchase.

But for farmers like Nalawade, that would be adding insult to injury. “The Modi government has already raised the basic sugar recovery for calculating FRP (beyond which mills have to pay a premium) from 9.5 per cent to 10 per cent, resulting in loss of over Rs 120 per tonne for us. If even this is not paid at one go, what are we supposed to do?” he asks.

The government may not find that easy to answer, especially in a year leading to elections.